The Economics of Inheritance in Vanity Fair

The latest movie version of William Thackeray's Vanity Fair is more than watchable, and I don't think there's ever been a "chick flick" with so much economics in it. The basic setup is that poor but brilliant Becky Sharp uses her wits and charms to ascend the social ladder. In the process, we get a detailed but paradoxical model of social mobility.

The thrust of the model is that in 19th-century England, inherited wealth was supremely important. As a result, the elderly are the targets of constant rent-seeking by their younger and healthier relatives. In fact, aristocrats don't really do anything besides consume and rent-seek for bigger inheritances.

This is basically the model that Becky subscribes to, so she tries to marry her way up the social ladder. It isn't hard for her to hook Rawdon, the favorite nephew of a wealthy spinster. But Becky's plans come to naught because Rawdon's aunt disinherits him for marrying beneath his station. Then they have to wait long years for Rawdon's father to die... but I don't want to give away the whole plot.

Yet despite the centrality of the "inherited wealth is all-important" model in Vanity Fair, we also see some extremely rich self-made men like Mr. Osborne, and bankrupt aristocratic families like the Sedleys. So while Becky and Rawdon act as if inheritance is the one and only key to prosperity, it is plainly possible to pull yourself up by your bootstraps, or imprudently burn through your family fortune.

The shortcut solution to these conflicting models, of course, is to point out that this is a work of fiction. But even adjusting for dramatic license, it still seems likely that we're a lot less focused on inheritance than we used to be. Why would that be?

The simplest explanation is that most people today divide their estates equally between their children, regardless of their behavior. If 19th-century English aristocrats had more flexible attitudes about their wills, then potential heirs would have tried harder to maintain and increase their cuts (and discredit competing heirs, of course!). Notice, however, that simple primogeniture (eldest son gets everything) would not encourage rent-seeking any more than equal division does. The vital distinction is between fixed and flexible inheritances.

Another explanation is that wealth used to be much larger relative to income. That would encourage people to drop out of the labor market to ingratiate themselves with elderly relatives. I've never seen any data on this, but I'm skeptical.

A last story that intrigues me is that aristocrats simply weren't very talented relative to the rising middle class. They didn't sit on the sidelines of the economy because no one could make it on their own, but because they couldn't make it on their own. Maybe this reflects economic change per se - succeeding in agriculture takes very different skills than succeeding in industry. Or perhaps is reflects the decline of mercantilism, with the nobility losing ground in the face of open competition.

Which story is right? I'm not sure. But I think Becky would have done better for herself if she studied more economics and less French.

Comments and Sharing

I think everything you said is correct, but also, as Fukuyama discusses in The End of History and the Last Man, the aristocracy were inheritors of a tradition of martial prowess that was diametrically opposed to the values of the marketplace. He does note that some aristos successfully made the transition to businessmen, and that has been true in some cases. Fukuyama cites the samurai, though I am a tad skeptical of that example. They had to be nuked first.

Your post confirms my long-held view that the term "rent-seeking" is useless except when applied to a landlord looking for a check from a deadbeat tenant.
Fetter used the term "rent" to mean a payment to a unit factor of production, such as an hour of labor, etc. But to say that Jones, who is entering the job market for the first time, is rent-seeking is ridiculous even though his pay is a form of economic rent, at least on Fetter's view.
Becky, marrying her way up the social ladder, is looking for a sugar daddy not a rent.

As a second son, I should point out that primogeniture would strongly encourage one particular kind of "rent-seeking" behavior, a kind which would involve the first-born son and a tragic hunting accident. The rent being sought, of course, would be in the eldest son's riding jacket, just to the left of the sternum, and probably a matching one out the back.

As for the aristocracy-as-heirs-of-military-prowess line: they seem to have burned through that inheritance pretty thoroughly by World War I.

Thomas Jefferson was the key figure in getting rid of primogeniture in America in favor of more equal division among children. He also set up the enormously important federal frontier land sale system that encouraged land ownership to broadly distributed. Paul Johnson's recent history of America has a lot on Jefferson's role in making America a middle class society.

I would suggest, though, that inheritance is a fraught subject in modern America and will become even more so as the current generation dies off, leaving valuable estates of stocks and homes. Our culture, however, doesn't like to write about inheritance, unlike the Victorians who wouldn't shut up about it.

A third explanation is that until the gold standard was abolished, monetary policy was inherently deflationary: the economy grew faster than the supply of specie. A 19th century fortune enjoyed a modest growth in purchasing power even without interest. The credit economy, however, tends to be inflationary. With real interest rates hovering rather close to zero in much of the world today, fortunes just aren't as useful as they used to be.

I am surprised and amused by the last comment about economics vs French. And I think it is wrong.

Even though Britain had become a very economically liberal society, it was still dominated by social class. This had direct economic effects by cutting many people out of promising business opportunities for reasons of snobbery or social control -- think of how New York high society even today partially rations access to the MSM and to the tastemakers in fashion and culture. There was also the real fear that Parliament could adjust regulations in a way that was unfavorable to the rising entrepreneur. Though the Continent had to deal more seriously with the problems of the "noblesse de robe" than the British, it was not an accident that successful businessmen sought to use their wealth to enter Parliament, to buy fancy landed estates, and all-in-all to gentrify themselves if only as a defensive measure.

The idea that a woman who did not speak (favored) foreign languages, [or who knew no music, could not converse wittily,] and was not possessed of an independent source of funds could do better with economics is, to put it mildly, a tad naive about the options available to strivers and gold-diggers.

Rents in the textbooks I assign my students are returns above opportunity costs.

Rent seeking by inheritance nabbing is not big in the US for at least 2 reasons. One, we never had an aristocracy so inheritance may provide money, but it doesn’t give prestige. Two, innovation beats the hell out of inheritance as a route to wealth in 21st century US. In the Forbes 400 richest Americans, the top 5, and all of those with at least a 2 in front of their 10 zeros of net worth, are innovators not inheritors. Out the top 100 less than 10 are classified as inherited wealth. Even if we include wealth by being a relative of the man who made the fortune in the same class as inheritance nabbing, that still gives us less than 20% of the top 100.

Yep, there were plenty of rich people in 19th century Britain who'd made their money through trade and then entered the upper classes. But there were lots of people in the labour market who were very poor, but you don't see since they weren't hanging out with the aristocracy. One of Jane Austen's brothers went into business and went bankrupt.

Once adjusted for risk, inheriting money may have been the better option, particularly if you had no particular reason to believe you would do better than average in the labour market.

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